NIGERIA - Finance
Governor, Central Bank of Nigeria (CBN)
Godwin I. Emefiele is the current Governor of CBN. Prior to joining the CBN, he served as Group Managing Director and CEO of Zenith Bank PLC, one of Nigeria’s largest banks with over 7,000 staff, about USD3.2 billion in shareholders’ funds and subsidiaries in Ghana, Sierra Leone, Gambia, South Africa, China, and the UK. Prior to his banking career, he was a lecturer in finance and insurance at two Nigerian Universities. He holds degrees in banking and finance from the University of Nigeria, Nsukka.
In the last three years, the Nigerian economy encountered enormous external shocks that exposed our vulnerabilities. Due to inherent structural imbalances, Nigeria relies on oil revenue for FX supply and has a taste for imported goods. The sharp collapse of oil prices that began in 2014 adversely impacted fiscal revenue, FX reserves, and exchange rate stability. As the fiscal space constricted, the maneuverability of macroeconomic and social policies diminished. All these, in addition to shrinking FX reserves and depreciating exchange rate, placed immense strain on the Nigerian economy. By 2016, the economy had fallen into a recession even as inflation surged to intolerable heights. Given the importance of price stability in macroeconomic stabilization and the role of the exchange rate in the dynamics of relative-prices, the CBN focused its efforts on battling inflation and maintaining exchange rate stability. Our analyses indicate that a runaway inflation could only worsen the already unsavory situation. Hence, monetary policy stance remained cautiously tight to categorically rein in inflation and extricate lingering money illusions in the macroeconomy. We also took several decisions to fine tune the operations at the FX markets, with a view to purge the system of unscrupulous excess demand and ensure exchange rate stability.
Our assessment indicates the financial system remains fundamentally robust despite the enormous external shocks that debilitated the economy. This is highlighted by increased profits recorded across the industry and the improved credit ratings by foremost agencies. To ensure sustained financial stability, the CBN will continue to closely regulate banks using the risk-based supervision model and will maintain the elevated threshold of prudential indicators. As against the CAR of 8% prescribed internationally, the CBN had set a threshold of 16% for systemically important banks, 15% for banks with international presence, and 10% benchmark for all other banks. Given that the banking system is the lubricant of the economy, banks have an enormous role to play in supporting the economic recovery. I would encourage them to channel more credits to agriculture and MSMEs through our development finance initiatives. Contrary to the amplified risk perception of MSME credits, the sector of nonperforming loans (NPL) is far below the industry average. This indicates that credits to MSMEs generally perform better than those of supposedly low-risk sectors, many of which end up with the Asset Management Corporation of Nigeria (AMCON). I would also advise banks to conduct methodical risk assessment and to adopt stringent prudential standards internally.
Four commodities—rice, fish, sugar, and wheat—make up nearly NGN1.3 trillion (USD3.6 billion) annually in import bills. These and other commodities on the 41 items list are a drain on our FX reserves. Our proclivity for imports has enriched other countries and impoverished ours. We cannot depend on other countries for food; that exposes us to unquantifiable social and economic vulnerabilities. If we increase domestic food production, we will create jobs, reduce poverty, and shield our economy from foreign impulses. Thus, the CBN is channeling a great deal of development finance and interventions towards agriculture to ensure sufficiency in the production of food and raw materials through our various development finance mechanisms and schemes. Our intention is to ensure that Nigeria does not depend on other countries for most of the things we consume. We must ensure that our non-oil current account balances stand hugely positive. On this note, the Anchor Borrowers’ Program (ABP) has recorded spectacular success, especially with regard to rice production. As we speak, rice production has increased several-fold. Kebbi State alone is expected to produce over 2 million metric tons of rice annually, while employees at Labana Rice Mills seek to keep pace with demand, processing 320 tons of rice a day, a 250% increase from the previous year. Therefore, we have seen sharp drop in rice imports that translates to a significant reduction in rice import bills, saving us over USD600 million in 2016 alone.
Nigeria is open to business. For the first time, through a veritable partnership with the London Stock Exchange, various Nigerian stakeholders have accomplished previously unimaginable feats, including a federal government-issued diaspora bond. It was the first time any sovereign African nation had registered with both US and UK authorities and targeted sales at retail investors. The bond was oversubscribed by 130% and raised USD300 million, demonstrating increased confidence in the Nigerian economy. This was attested to by the recently released World Bank’s ease of doing business indicator for 2018, which indicated that Nigeria, with a score of 52.03, improved 24 places to rank 145 out of 190, above the average score of 50.43 recorded for sub-Saharan Africa. The CBN’s efforts to establish, nurture, and administer the Credit Bureau and the National Collateral Registry contributed in no small measure to improving access to credit and enhancing the ease of doing business. In addition, the introduction of the transparent I&E FX Window buoyed investors’ confidence and eased market sentiments. With all the evident improvements and increased transparency, Nigeria is a destination of assured returns to investors.
Barring any further unforeseen exogenous shocks, we expect the economy to fully recover from the recession by 2018. We also expect disinflation to continue throughout 2018 and, if the current momentum sustains, inflation may revert to low double-digit or even single-digit levels. FX reserves are expected to continue to grow. At the current pace, we can attain a reserve position of about USD40 billion by early 2018. The exchange rate stability that began in 2017 is expected to continue as the FX market transparency sustains and improved market confidence remains. With rent-seekers locked out of the market, there is a genuine prospect that the exchange rate could begin to appreciate against major currencies. Overall, I expect the economic recovery that began in 2017 to consolidate in 2018 and beyond. As the sentiments improve in the macroeconomy supported by proactive monetary, trade, industrial, and fiscal policies, I expect a continued uptick in GDP growth, with positive spillovers on unemployment. Policy-driven growth in the agricultural and industrial sectors will further bolster our economy.
NIGERIA - Energy & Mining
Group Managing Director, Eraskorp Nigeria Limited